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Court ruling on Enbridge property taxes brings bad news for county

News that a tax court judge found that the Minnesota Department of Revenue overvalued Enbridge Energy's oil pipeline system by billions of dollars was unhappily received by officials in Carlton County.

That's because the burden of paying refunds could fall on the 13 counties — including Carlton — through which the pipelines pass.

"Could" is accurate for now because all parties involved in the lawsuit have 30 days from May 15 to appeal the ruling. The Minnesota Department of Revenue has already signaled its intent to do so. The state Legislature could also decide to shoulder the burden of repayment, an option the counties would prefer, since it is that state that makes the assessments.

Regarding the assessments on Enbridge, Minnesota Tax Court Judge Joanne Turner ruled that the pipelines were overvalued by $3.2 billion from 2012 to 2014. Specifically, Turner found the pipelines were overvalued by $156 million in 2012, $888 million in 2013 and $2.2 billion in 2014. Enbridge had complained that it was overtaxed by $15 million to $20 million in that same period.

Carlton County Auditor/Treasurer Paul Gassert calculated the impact of the court ruling on Carlton County at about $750,000. The impact to three different townships is about $115,000 total, with 40 percent of those costs being borne by Silver Brook, 20 percent by Twin Lakes and 30 percent by Perch Lake.

The amount overpaid to three different school districts is approximately $275,000, with 35 percent of those costs falling to Carlton School District, 25 percent to Cloquet School District and 40 percent to Wrenshall School District.

The State of Minnesota would have to pay back about $480,000 for those three years, Gassert estimated.

The hit is hard because Enbridge is a major player in Carlton County in terms of property taxes. Gassert said that Enbridge paid more than $4.7 million total in taxes in Carlton County in 2016, for example, which were divided up between the various governmental entities. Minnesota Power paid $3.13 million and Northern Natural Gas paid $1.14 million in 2016. Sappi, by comparison, paid more than $2.37 million in 2016.

The final levy for just the county's portion of the 2016 Carlton County taxes was just over $24.37 million.

Carlton County Assessor Kyle Holmes stressed that the decision will very likely be appealed, delaying again any potential paybacks.

Holmes also pointed out that Enbridge is also appealing its assessed property values for 2016-2018, which could also bring bad news once that case is heard in tax court.

"Bottom line is the decision was bad for us," Holmes wrote in an email to the Pine Journal. "Not worst-case scenario, but certainly not what we were hoping for. It definitely went in favor of Enbridge."

Enbridge, based in Calgary, operates several pipelines that cut across northern Minnesota, connecting Alberta and the company's terminal in Superior. The company is awaiting the final approval in June for another oil pipeline — the controversial Line 3 replacement project, which Minnesota regulators have been reviewing since 2015. An attempt by the state legislature to circumvent that process failed during the recent session.

Currently Enbridge pipelines pass through 13 minnesota counties — Aitkin, Beltrami, Carlton, Cass, Clearwater, Hubbard, Itasca, Kittson, Marshall, Pennington, Polk, Red Lake and St. Louis — where they hold substantial tax bases. Two of those counties, Red Lake and Clearwater, could end up refunding more money than they raise in the levy each year from taxpayers.

"That to me is earth-shattering because how can a community have a mechanism to pay that back without just closing their doors or raising the tax rate so high on residents and businesses that they just push people out of their county?" Matt Hilgart, a general government policy analyst for the Association of Minnesota Counties, told the Duluth News Tribune.

In an emailed statement last week, Enbridge spokeswoman Jennifer Smith said the company will work with affected counties.

"Throughout this entire process, Enbridge has been focused on trying to find an equitable solution to the tax dispute with the State of Minnesota Department of Revenue. Enbridge does not plan to take any immediate action on this ruling as all parties now have 30 days to file an appeal," Smith said.